Amid talk of a recession and record inflation, you’d think Americans would keep a close eye on spending on auto loans.
And you would be wrong.
New data from LendingTree shows the average monthly auto loan payment in the US is $644, up 11.8% from the previous year.
Worse yet, payments on used car loans and lease agreements are rising faster than regular car payments, which are up 15% and 18%, respectively, Lending Tree reports.
With Auto Loan Debt, Slow Means Trouble
Auto loan borrowers who take their time paying off their vehicle debt are making a big mistake, in addition to increasing their monthly loan payment.
“A car loan is no different than any other debt in that the original sum borrowed must be repaid along with interest,” said Kunal Sawhney, chief executive of the Kalkine Group, a global equity research firm. “To emerge as a prudent borrower, one must always prioritize paying debt on time.”
For starters, not paying debt on time hampers a borrower’s ability to access other forms of credit that may be more critical, for example, buying their first home.
On the other hand, paying off a car loan faster “improves your credit score and allows you to take out another loan in a pinch, because it improves your debt-to-income ratio,” Sawhney said.
“It gives the creditor confidence that you have the will and ability to pay.”
Four Ways to Pay Off Car Debt Faster
Get ahead of your total auto loan debt and get out of those high monthly loan payments with these tips from personal finance experts.
Get a side hustle. Looking for realistic ways to earn some extra money is a big key to getting out of auto loan debt faster.
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“There are so many flexible side hustles you can do these days, working as much or as little as your schedule allows at any given time,” said Andrea Woroch, founder of personal financial advisory platform AndreaWoroch.com. “Plus, a lot of side jobs can be done from home.”
For example, you can earn up to $1,000 a month taking care of pets through sites like Rover.com.
“Other ideas include virtual tutoring on nights and weekends through Varsity Tutors, getting paid to answer professional questions based on your professional experience through JustAnswer, leaving deliveries while you run errands using the Roadie app, or offering chat support. online through The Chat Shop,” Woroch. said.
Put your savings to work. Any time you avoid an impulse buy or save money using a coupon, put those savings to work by immediately rolling over the amount you were about to spend toward your car loan payment.
“You can find coupon codes for just about anything through deal aggregators like www.CouponFollow.com, which organizes savings by store name and category, or use the www.Cently.com browser extension, which automatically applies discounts Woroch noted. “For big-ticket items, a 10% or 20% savings discount can put a dent in your loan balance.”
Pay extra on your loan payments. If you can pay more than the minimum payment on your loan, consider doing so.
“By making extra payments, you’ll be able to increase the speed with which you pay off your loan,” said Carl Jensen, founder of financial product comparison site MoneyMow.com. “However, you shouldn’t go too crazy: aim for more than 25% of your monthly income, if possible.”
Streamline payments through automatic payment. Speed things up by setting up automatic payment with your bank. Better yet, do it with an extra amount added each month.
“For example, if your car payment is $500 a month, set your automatic payment to $600 or $700 a month,” said Kalen Houck, founder of the personal finance blog KalenHouck.com. “If you automate it, you’re much more likely to stick with it, as it forces you to be self-disciplined.”
In doing so, don’t think that if you have money left over at the end of the month, you’ll pay a little more on your car loan.
“You have to decide at the beginning of the month exactly how much extra you want to pay and include that amount in your budget,” Houck said.
“If you don’t decide beforehand, life happens and there will always be other things that come up and steal those dollars.”
